New York Legislation Proposes Boost for Minority Banks
A pair of bills currently being reviewed by the New York State Legislature could potentially expand the access of minority and community banks to state deposits. The proposed legislation is expected to stimulate economic development in underbanked communities and make it easier for these banks to provide more loans to local businesses and individuals. This move comes as part of an ongoing effort to address the financial inequalities that disproportionately affect minority and low-income communities. (Source)
The Proposed Legislation
The two bills aim to modify existing statutes that allow the state comptroller to place a certain amount of public deposits at eligible banks in order to enhance banking services and stimulate local economic development. Developed by New York State Comptroller Thomas DiNapoli and Democratic Sen. James Sanders Jr., these proposals have received substantial support thus far.
Clare Cusack, president and CEO of the New York Bankers Association, expressed her support for the bills, stating, “These two bills modernize public deposit programs, so that banks can get more capital out to work into the communities they serve, while keeping strong safeguards in place for public funds.”
Programs Poised for a Boost
The proposed changes target two specific programs: the Banking Development District Program (BDD) and the Community Bank Deposit Program (CBDP). Established 28 years ago, the BDD program provides state deposits to eligible banks and credit unions that open or maintain a branch in an underserved community. However, it has been criticized for excluding many of the banks it was designed to assist.
The CBDP, on the other hand, was created in 2008 with the aim of encouraging local economic development by depositing up to $20 million of state deposits into qualified financial institutions. Currently, only four banks participate in this program.
Changes Aimed at Minority Banks
The proposed bills are designed to draw more banks, particularly minority-owned ones, into these programs. Historically, minority banks, especially Black-owned institutions, have struggled to access capital and deposits. This has limited their ability to provide loans, particularly in low- and moderate-income communities where it’s more challenging to secure deposits.
Proposed Changes to the BDD Program
One of the proposed changes would lower the participation barrier in the BDD program. Currently, banks and credit unions are required to collateralize the deposits they receive through the program, often by purchasing Treasury securities. This requirement limits their ability to leverage the deposits to make loans. The proposed bill would allow these institutions to use reciprocal deposits as collateral, freeing up capital for loans while ensuring that the deposits are protected by the Federal Deposit Insurance Corp.
Proposed Changes to the CBDP Program
The second proposal aims to raise the maximum public deposit cap from $20 million to $30 million for smaller banks enrolled in the CBDP. Only four banks currently participate in the program, none of which are minority-owned. The proposed amendment would encourage more banks to participate and thereby increase their lending capabilities.
Outlook for the Legislation
There is optimism that these proposals will secure bipartisan support and be approved during the current legislative season. Advocates argue that the changes will stimulate economic development and help underserved communities by making it easier for local banks to lend. As Terri Crowley, New York state’s executive deputy comptroller for operations, put it, “The Comptroller is committed to this whole purpose of increasing lending everywhere, especially in underserved communities. That’s the goal of both programs.”
As lawmakers deliberate, the potential impacts of these proposals on minority banks and the communities they serve are being closely watched. The proposed legislation offers a promising step towards improving financial inclusion for minority and low-income communities. (Source)
